The Market Process in Health Care

Many economists describe the healthcare market as dysfunctional due to problems of asymmetric information, affecting both consumer and producer decision-making, and high switching costs. These critiques of the healthcare market often come with calls for more regulation in order to protect the consumer or increase transparency. In this paper, I provide an alternative analysis of the healthcare market and show how expanding the scope of exchange relationships, rather than constraining them through regulation, can lead to an improved competitive environment. I use the example of doctors hired by mutual aid societies in the early 1900s to show how the problems of asymmetric information were mitigaed through a mix of contracting and labor market competition. While market imperfections may seem endemic to the healthcare market, the analysis in this paper shows that these issues can be mitigated over time if consumers and producers are allowed the freedom to contract and engage in mutually beneficial exchange.